From the moment you consider running your own business you must keep track of all financial transactions affecting your business. It may also be possible to claim tax relief for some expenses incurred prior to trading. This works on condition that the items of expenditure are used wholly and necessarily in your business, and were incurred in the 7 years prior to trading.
Typically such expenses could include:
- Market Research
- Designing and Testing Your Products/Services
- Computer Equipment & Software
- Website Design
Initial training costs are not normally tax deductible, however further guidance should be sought from your accountant on this matter.
Good book keeping is the key to effectively managing your finances and running a successful business. Keeping it simple is the key to understanding your business and doing it regularly makes the job easier.
If you are self-employed, you are responsible for reporting all your income and expenditure to H M Revenue & Customs in an accurate and honest manner. The key is keeping good records - have a look at our accounting software. Good record keeping does not necessarily involve employing a professional bookkeeper or investing in expensive computer software - an account ledger, diary notes or a simple computer spreadsheet can be sufficient to record your income and expenditure.
We recommend your new business opens a separate business bank account. If you prefer to use a credit card, then again, separating you business and personal transactions into two separate cards is recommended.
Separating your business and personal life will make the preparation of sole trader accounts easier and quicker, it also offers a limited amount of protection should the Tax Man wish to enquire into your business affairs.
Every month compare your bank statement with your cash book - both balances should be the same.
There are generally three forms of transaction that require recording:
1. A record of every sale
2. Bank transactions, i.e. payments made from the bank and deposits made into the bank
3. Cash payments and cash receipts for every purchase
4. Credit card payments.
When deciding on how to record your transactions you must make provision to identify which receipts/payments are cash, bank or credit card. With regards cash receipts you must also be able to identify any cash not deposited to the bank but used for sundry cash expenses or general living expenses.
Remember bookkeeping records and supporting receipts should be retained for 5 years and 9 months after being submitted to H M Revenue & Customs.
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